On March 29, 2012, the Inland Revenue Department (“IRD”) took an important step forward by formalising the Advance Pricing Arrangement (“APA”) programme in Hong Kong.

The IRD issued Departmental Interpretation and Practice Notes Number 48 – Advance Pricing Arrangement (“DIPN 48”), which contains guidance on the new APA regime and its implications for taxpayers with transactions related to Hong Kong.

l. What is an APA?

An APA is an agreement between a taxpayer and the tax authority/ies on an appropriate method for determining the transfer pricing for intercompany transactions. APAs are typically on a bi- or multilateral basis, meaning they include an agreement between the taxpayer and the tax authorities of two or more jurisdictions.

Taxpayers benefit from an APA by obtaining certainty on the tax treatment of their intercompany transactions, reducing audit and documentation burdens as well as avoiding the risk of double taxation….

Enjoying this article? To continue reading you need to take out a FREE trial to the Transfer Pricing Library.




Already a subscriber? Sign in here
Disclaimer

BRUSSELS — The European Parliament approved April 19 by a large majority legislation calling for European Union member states to approve a mandatory version of the common consolidated corporate tax base (CCCTB) legislation that has been blocked in the Council of Economic and Finance Ministers for more than a year.

By a vote of 452-172, with 36 abstentions, the European Parliament also insisted in its amendments that all large EU companies involved in cross border business adopt the CCCTB—the pending proposal would only be voluntary—but the scope should be expanded to cover all companies after a transition period.

In addition, the European Parliament backed amendments that call for a revision of the all-important formula for distributing revenue among member states….

Enjoying this article? To continue reading you need to take out a FREE trial to the Transfer Pricing Library.




Already a subscriber? Sign in here
Disclaimer

As anticipated in our previous article, (1) the next step in the rewrite of Australia’s transfer pricing regime has been taken. The Australian Government released on March 16, 2012 an Exposure Draft (“ED”) of the proposed new transfer pricing rules. These proposals only relate to Stage One of the reform process – dealing with retrospective reform. Whilst a fundamental rewrite of the transfer pricing rules (Stage Two), as proposed in November 2011, is underway it seems as if the process will be incremental rather than a “big bang” approach.

This “step by step” approach to the reform, rather than the fundamental rewrite initially proposed, was unanticipated and is adding considerable complexity to an already complicated regime. In summary, Australian taxpayers and transfer pricing advisors will now have three sets of provisions to consider from a retrospective transfer pricing perspective, the current Division 13, the new Division 815, and the relevant Double Taxation Agreement.

Stage One of the reforms includes very few of the areas touted for reform in the consultation paper (e.g. documentation reform, time limits and introduction into self assessment regime). Accordingly, taxpayers and advisors are still in the dark as to the future shape of the prospective reforms. However, it is anticipated the Stage Two reforms (and/or subsequent stages) will be released in the near future….

Enjoying this article? To continue reading you need to take out a FREE trial to the Transfer Pricing Library.




Already a subscriber? Sign in here
Disclaimer

(1) Transfer Pricing International Journal, Vol.13, No.2, February 2012

The United Kingdom’s 2012 budget, released March 21, includes the government’s previously announced legislation to introduce a patent box regime and to reform the nation’s controlled foreign companies regime.

Under the proposed patent box tax regime, companies may elect to apply a 10 percent rate of corporation tax from April 1, 2013, to all profits attributable to qualifying patents, whether paid separately as royalties or embedded in the sales price of products. The regime will be phased in over five years beginning April 1, 2013….

Enjoying this article? To continue reading you need to take out a FREE trial to the Transfer Pricing Library.




Already a subscriber? Sign in here
Disclaimer

The Finance Minister presented the Finance Bill 2012 (Finance Bill) in the Parliament on March 16, 2012 proposing significant amendments in the transfer pricing (TP) regulations. In recent times, taxpayers in India have been confronted with large scale litigation in TP and conflicting judicial rulings have made TP an area of major concern for the taxpayers. The Finance Minister has proposed the introduction of Advance Pricing Agreements (APA) with a view to providing greater certainty to investors. Furthermore, the Finance Bill provides clarification on certain long debated issues which may limit the ongoing litigation on such issues. The scope of TP regulations has also been broadened by including specified domestic transactions within the purview of transfer pricing regulations. The key amendments proposed in the Finance Bill are discussed below.

l. Introduction of APAs

With a view to addressing the large scale litigation in TP, the Government has introduced APAs in the Finance Bill with effect from July 1, 2012. The Finance Minister mentioned in the speech that the introduction of APAs can significantly bring down TP litigation and provide tax certainty to foreign investors…

Enjoying this article? To continue reading you need to take out a FREE trial to the Transfer Pricing Library.




Already a subscriber? Sign in here
Disclaimer

l. Documentation

On January 4, 2011, the French tax authorities published guidelines on new requirements that had been introduced relating to specific transfer pricing documentation (the “Guidelines”). The new requirements, effective as of January 1, 2010, were codified under section L 13 AA of the French tax procedure code (“FTPC”) and apply to certain companies (as defined below) in respect of transactions carried out during the subsequent fiscal year. Companies should by now have already prepared the necessary documentation – since May 2011, the French tax authorities may request disclosure of such documents in the course of a tax audit of the fiscal year. In practice however, companies are likely to receive the first of such requests in the forthcoming months.

In summary, French companies whose turnover (net of taxes or total gross assets) reaches a threshold of at least €400 million will fall within the scope of these new rules. The rules provide that transfer pricing documentation should consist of two sections, based on the Code of Conduct of the European Union: the first providing general information on the group to which the relevant French company belongs; the second providing more specific information on the audited company….

Enjoying this article? To continue reading you need to take out a FREE trial to the Transfer Pricing Library.




Already a subscriber? Sign in here
Disclaimer

Indonesia’s Tax Office (ITO) issued a new regulation (PER-32) on November 11, 2011 that amends and clarifies the transfer pricing rules and brings them more in line with the OECD guidelines. The new rules came into effect on the date of issuance.

PER-32 aims to broaden the scope of the existing regulation on the arm’s length principle as provided in PER-43, which sets out the steps that must be taken by taxpayers engaging in transactions with related parties to demonstrate the arm’s length nature of their transactions. These steps include preparing a comparability analysis, showing how the transfer pricing methods were selected and the arm’s length price (or fair profit) determined, and the formatting of transfer pricing documentation.

One of the key revisions in PER-32 is the shift from requiring a hierarchy of transfer pricing methods to the use of the most appropriate method (similar to the new OECD transfer pricing guidelines). This will give taxpayers flexibility to select the most appropriate method to determine the price of related party transactions, and will enable Indonesia to keep up with international best practices. Other notable changes include the following:

Enjoying this article? To continue reading you need to take out a FREE trial to the Transfer Pricing Library.




Already a subscriber? Sign in here
Disclaimer

Danny Beeton is Head of Transfer Pricing Economics;
Rupert Macey-Dare is a member of the Dispute Resolution and Transfer Pricing practice

The trial of McKesson Canada Corporation v. The Queen commenced in the Tax Court of Canada in Toronto on October 17, 2011 and is expected to take six to seven weeks. The case concerns a related party debt factoring arrangement between McKesson Canada Corporation (McKesson) and McKesson International Holdings III S.a.r.l. (factor) resident in Luxembourg.

Certain important details of the transfer pricing arrangements and the transfer pricing arguments are not apparent from the Notice of Appeal (1) and the Reply, (2) but already it appears that certain key techniques and assumptions used in this common tax planning arrangement have been called into question and in this respect McKesson will surely join GE Capital Canada, (3) GlaxoSmithKline (4) and Alberta Printed Circuits (5) as another key source of transfer pricing case law and precedent originating from Canada.

l. General features of a debt factoring arrangement

It is worth recapping first of all the standard features of an invoicing discounting arrangement. A good source is the US Internal Revenue Service “Factoring of Receivables Audit Techniques Guide” dated June 2006 (LMSB-04-0606-004). (6) This advises that

“the factor typically charges interest on the advance plus a commission. (7) The price paid for the receivables is discounted from their face amount to take into account the likelihood of uncollectability of some of the receivables…a factor may provide any of the following services: (8)

1. Investigation of the credit risk of the client
2. Assumption of the credit risk of the customers
3. Collection of the client’s accounts receivable from the customers
4. Bookkeeping and reporting services related to accounts receivable
5. Provision of expertise related to disputes, returns and adjustments
6. Advancing or financing…

the taxpayer pays the foreign factor the following fees: a discount; administration fees; commission; and interest (9) …however, the foreign [related party] factor does not perform any of the typical services of a factor, including collection of the taxpayer’s accounts receivable. Instead, the taxpayer agrees to continue doing all or most of its own collection work on its accounts receivable.”…

Enjoying this article? To continue reading you need to take out a FREE trial to the Transfer Pricing Library.




Already a subscriber? Sign in here
Disclaimer

(1) McKesson Canada Corporation v The Queen, Notice of Appeal (Part 1 Reassessment), Court File No 2008-2949(IT)G, 18 September 2008 and Amended Notice of Appeal, 17 December 2010.
(2) McKesson Canada Corporation v The Queen, Amended Reply to Notice of Appeal, Court File No 2008-2949(IT)G, 12 January 2011 and Reply to Amended Notice of Appeal (Part XIII) dated 12 January 2011.
(3) 2010, Canadian Federal Court of Appeal.
(4) 2010, Canadian Federal Court of Appeal.
(5) 2011, Tax Court of Canada.
(6) N.B. This guide appears to be current as of 17 March 2011 – see IRS website page: www.irs.gov/businesses/article/0,,id=159770,00.html
(7) While the economics of factoring are somewhat akin to lending, so that the price of the receivable will include an interest-like component to compensate that factor for the time it is out of funds (i.e. the period between the purchase and the maturity date of the receivable), that is built into the discount applied by the factor in determining the purchase price – there is actually no loan or advance as such in a factoring arrangement, only the purchase of an asset (i.e. the receivable).
(8) “Managing Factoring in Banking Groups”, Discussion Paper 1/2006, Credifact April 2006, pp 5-6, observes that factoring involves a combination of receivables financing, insurance and services.
(9) See footnote 8; in practice all services are paid for through the discount.

With representatives from the IRS, high-level officials from SAT China, the Ministry of Finance of India and experts from OECD, the 5th International Taxation Conference on 1st & 2nd December 2011 in Beijing offers a valuable opportunity for MNCs and tax practitioners to interact with revenue authorities.

Major topics to be covered include:

• APA
• Profit Split
• Restructuring
• TP documentation
• Tax Treaties
• Permanent Establishment

For more information or to reserve your place, visit http://www.noppen.com.cn/upcoming/L1132/index.asp

l. Relevant tax laws and official guidelines

Regulations regarding transfer pricing documentation requirements entered into force in Finland in January, 2007.1 In addition to legislative rules, the Finnish Tax Administration provided an Official Guideline (Transfer Pricing documentation requirements, October 19, 2007) concerning how to establish, implement and document company’s transfer pricing policies….

Disclaimer

1 Relevant legislative rules are in §14 a-c, §31, §32, §75 and §89 of the Finnish Fiscal Assessment Act.